Picking the wrong deal will be costly, MoneyExpert.com warns
Homeowners stuck on uncompetitive fixed-rate mortgages will have to fork out an average £6,370 to get out of their current deal, according to new analysis* from MoneyExpert.com.
The independent financial comparison website says the recent spate of rate rises has caused homeowners to surge towards fixed deals, leaving many vulnerable to massive early redemption charges if they change their mind.
The Bank of England is today expected to keep interest rates at the current six-year high of 5.75 per cent but there are still concerns rates will rise in the coming months.
MoneyExpert.com analysis shows redemption penalties for leaving a fixed-rate mortgage early do not vary massively depending on whether you choose to leave in the first, second or third year of your deal.
The average fee for leaving a fixed rate mortgage in your first year is £6,631.55, in your second year £6,225.57 and in your third £6,254.18. Lenders can choose to charge either a percentage of a customer’s total loan or an agreed number of monthly repayments as a fee for reneging on a fixed deal.
Sean Gardner, Chief Executive of MoneyExpert.com, said: "Homeowners have been told to fix their mortgage deals since last summer as interest rates continue to rise, and lenders have obviously been keen to capitalise on this.
"Choosing a fixed rate mortgage is a long-term commitment and a binding contract – so lenders are well within their rights to charge you if you want out.
"The key thing is to make sure you read the small print when signing up to a fixed deal. Redemption charges fees vary enormously and will also depend on the term you agree to – lenders will be less happy if you leave a seven-year deal after 12 months than they will if you leave a two-year deal in your second year.
"With further rate rises not out of the question, we anticipate that even more homeowners will consider fixing before the year is out. So it’s important that people are aware of all the pitfalls – as well as the benefits – of fixed rate mortgages."
The MoneyExpert.com figures show that early redemption fees on fixed rate mortgages can be as low as 1 per cent of your loan – only £1,500 on a £150,000 mortgage. However, customers could be charged up to 13 monthly repayments – £13,235 – for leaving a longer deal of seven, eight or even ten years.
Sean Gardner added: "There will be the temptation to fix your mortgage repayments for the long term as more products become available offering 10 year deals or more. These do have benefits and can provide peace of mind, but such products often come with a significant sting in the tail if you change your mind and decide to leave early."
Analysis** by MoneyExpert.com in February showed that the average application fee on fixed-rate mortgages had increased by 18.5 per cent since the first Bank of England rate rise in August 2006. During the same period the number of products that come with a fee of over £750 had risen sevenfold from 13 to 93.
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* MoneyExpert.com analysis assuming £150,000 mortgage @ current average fixed rate of 6.43% – 30.07.07
** MoneyExpert.com analysis 13.07.06 & 06.02.07